Tactical ETF Review: The Great Rotation From Bonds To Stocks?

The punditocracy is calling it the great rotation—selling bonds and buying stocks in 2013. Just as this buzz-phrase went viral, so did the warnings that the trend isn't long for this world. Perhaps, but the momentum in favor of equities is certainly transparent so far in 2013. Reviewing our set of ETF proxies for the major asset classes reflects handsome gains for stocks and varying degrees of the opposite for bonds. Actually, let's clarify: stocks in developed markets have popped recently. Equities in so-called emerging realms are slightly in the red for the year so far through February 8, in US dollar terms.

In any case, beware the great rotation, we're told. The notion of a new secular bull market in stocks is a scam, the pessimists say. They may be right, or not. But the rotation, ever evolving, great or small, rolls on. Exactly how it rolls is debatable in real time, but there's a fair degree of confidence that it will persist overall. A trivial observation? Hardly. As it turns out, that bit of insight is quite valuable, as rebalancing's record suggests. What's the catch? Broad diversification across asset classes, and owning an evolving set of winners and losers. It sounds like a losing proposition, of course. But only on an ex ante basis. Ex post, however, is usually another story.